He is suggesting that things were out of control before the Depression, which caused it (post hoc ergo propter hoc), and then says thanx to FDR and regulation, lenders of last resort, etc., things got better, except for moral hazard, which doesn’t really matter, except that we’re talking about moral hazard, which is what made our current situation worse, and we’re talking about moral hazard.

Other than that, his logic is spot-on.

He is suggesting that things were out of control before the Depression, which caused it (post hoc ergo propter hoc), and then says thanx to FDR and regulation, lenders of last resort, etc., things got better, except for moral hazard, which doesn’t really matter, except that we’re talking about moral hazard, which is what made our current situation worse, and we’re talking about moral hazard.

Other than that, his logic is spot-on.

He’s an anti-business zealot, especially anti-Wall Street, and then he apologizes for legal manipulation of bankruptcy because unions benefited in the fascist GM & Chrysler bailouts.

Don’t waste your time.

He’s an anti-business zealot, especially anti-Wall Street, and then he apologizes for legal manipulation of bankruptcy because unions benefited in the fascist GM & Chrysler bailouts.

Don’t waste your time.

You’ll never grasp the fact that it’s not corporate free speech that’s the problem. They can talk all they want, but unless government has the power to grant them the privileges you say they should have, their talk is ineffective.

The government gives special treatment to some corporations over others, based on political correctness. You wouldn’t have it any other way.

That’s true. It’s implied subsidized gambling for shareholders. I guess I was thinking of it from the perspective of the buyer of the stock during the good times, once the expectation is fully priced in (or even overpriced).

I’m not a guru, but I’ll take a stab: it’s theoretically possible but almost impossible in practice – at least to any meaningful degree. All stock prices are the discounted future cash flows and too many assumptions about too many variables are baked into everyone’s model to parse a single variable.

The interesting part is that the story does not require a bailout of shareholders. It is enough to promise to cover loans. It is enough to hint at it. The transfer of wealth happens in the good years from the public to shareholders. The shareholders are being compensated for taking on huge risks while the public is actually taking the risk.

The mechanics of this process are discussed in the podcast.

The moral hazard story in this podcast impressed me a lot. It requires very few assumptions (no secret meetings between bankers and politicians, no real industry-wide understanding, etc.) and involves very little hand waving. Even if the market has priced in a very soft “expectation” (for example, ‘a 25% chance that the government will cover outstanding loans from big banks in the event of a collapse’) could plausibly (it think) produce this moral hazard. An open cheque with a 25% chance of being honoured is definitely worth “something.” Capital markets know what to do with these kinds of cheques. In my opinion, needing only weak assumptions makes this a very strong theory. It does not necessarily mean that this moral hazard is “the” or “the only” reason for the crisis, but I think we can be confident it exists and we should agree that it must be eliminated. *Finance Gurus, is it possible to infer what kind of an expectation the market had priced in?

This will cause either social unrest or the government will buy more bread and circuses to keep the populace in an acceptable state of lethargy as the looting of America continues.

I wasn’t contesting any point TW made. I was just trying to further emphasize that corporations are not evil. Unfortunately I got caught responding – through TW’s intermediate post – to remarks made by the person I had pledged to ignore. And now I’m pissed because I violated my pledge.

Hmmm, before government was so powerful. Maybe it has something to do with the creation of the FED (at the urging of bankers) in 1913.